By Randall Morck Randall & Bernard Yeung
Economics and history both strive to understand causation: economics using instrumental variables econometrics and history by weighing the plausibility of alternative narratives. Instrumental variables can lose value with repeated use because of an econometric tragedy of the commons bias: each successful use of an instrument potentially creates an additional latent variable bias problem for all other uses of that instrument – past and future. Economists should therefore consider historians’ approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.
This paper has yet to appear in NEP-HIS but should be forthcoming as the NBER takes a bit to update its series. The paper has already been published (Business History Review, 85(1), Spring 2011).
Morck and Yeung offer a long and detailed critique of mainstream economics through its excessive use of econometrics and disregard for work by other economists. This article touches on an interesting idea, namely the need for greater external consistency in quantitative studies.
I was hoping that along side this critique the authors would have offered something similar for historians, perhaps along the lines of what Friedman and Jones state in the introduction to that same issue of BHR. I also felt their overall argument would have been more powerful if the paper had been published in a high ranking, mainstream outlet, the Journal of Economic History or any other of the highly quantitative outlets in the area.